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I run a IT services based in Brazil. Deep pool of real talent and commitment to quality in work (very different from what we hear from customers who hire develo

I run a IT services based in Brazil. Deep pool of real talent and commitment to quality in work (very different from what we hear from customers who hire developers from other countries). The country is not cheap though. High taxation makes everything very expensive, from cars (a piece of junk costs $15,000 and up) to MacBooks (US$3,000+). Things like cheese and wine are more expensive than in Europe (and I am talking about locally produced ones).

PaulHoule 3y ago
My take is high tariffs on high tech stuff holds Brazil back.
- rescbr 3y ago
  The issue is not the tariff rate per se, but the extremely complex and dysfunctional tax system that benefits the king's cronies. One example I like to use is the price of dishwasher detergent. Take in account that having dishwashers is a luxury in South America. A brand-name ~5 lb dishwasher detergent powder package retails for $ 6.50 ($ 7.10 if we consider sales tax) in the US. Last month I've been in Argentina and saw that a brand-name 5 lb package which is imported(!) retails for something like $ 7.50 w/ tax. A 6% premium considering that it could be considered a luxury product, there's also higher sales tax, but it is essentially the same price. It's a commodity after all, it's just detergent powder. The same detergent powder that is sold in Argentina, manufactured in Brazil no less, retails for $ 32 here. Why? There are no feasible alternatives, there is no feasible competition, and people will pay. The local companies here try to excuse themselves blaming high taxes, but this is not the full picture. If I wanted to setup a company to benefit myself from the arbitrage, I'd be out of money just to hire a tax lawyer to understand the tax implications of importing and reselling detergent powder. What's the effective retail tax rate for detergent powder? Who knows? Now, let's assume for our exercise the tax rate is insane and detergent powder has a 100% tax rate, I could be buying them at retail prices, selling them at half of what it is currently being sold and still make a profit. If this detergent powder price point is just pure profit on the manufacturer/retailer part, I'd rather have low stock to not be burned when they decrease their prices to cut me, but to benefit from the true import duties that are available for businesses (yes, that 60% import duty everybody hears about is only for regular people) I'd have to spend a lot of money to structure a full sized import/export business and order a ton of detergent to dilute my fixed costs. Now the risk of loss is greater, and my small arbitrage business idea doesn't look so good. The established companies won't have any competition as it is crazy as you see above, so they set the price point they want. It is exactly the same story with the automotive industry, fashion and even Apple. They famously sell the most expensive iPhones in the world, but I actually got mine 2 weeks after launch from an official reseller that just charged a fair price (like 20% over US retail) on a sale. Sorry for the long rant, the taxes are high, specially when you consider the perceived return on the tax paid, but it's not the full story.
  - meiraleal 3y ago
    > Last month I've been in Argentina and saw that a brand-name 5 lb package which is imported(!) retails for something like $ 7.50 w/ tax And that is why Argentina is broke and Brazil's real is the strongest south American currency. I'll take that over cheap dishwasher detergent powder any day.
  - rescbr 3y ago
    Ok, so I went and checked what are the taxes for detergent powder. It could be very wrong as I don't know the nuances of the sales tax. There are the federal import duties + taxes, amounting to 29.4%. Note that this rate is specific for powdered dishwasher detergent. Considering the standard São Paulo state sales tax of "18%" which is actually 21,95% as you don't simply multiply the good's price by the rate, but divide it by 1-rate, you end up with a 58,38% effective tax rate for importing and selling the detergent powder. Ah yes, the federal taxes compose the tax base as well, so you are paying taxes on the privilege of being taxed. A good proxy for the right retail price would be just multiplying the US retail price - that already includes the profit - by the effective rate, which would land it at around $ 12. Consider that no sane business would be paying retail prices (and the import duties are applied to the bulk/transfer price), you can figure out that there's at least 169% of profit tacked on the package of detergent.

PaulHoule 3y ago

My take is high tariffs on high tech stuff holds Brazil back.

rescbr 3y ago
The issue is not the tariff rate per se, but the extremely complex and dysfunctional tax system that benefits the king's cronies. One example I like to use is the price of dishwasher detergent. Take in account that having dishwashers is a luxury in South America. A brand-name ~5 lb dishwasher detergent powder package retails for $ 6.50 ($ 7.10 if we consider sales tax) in the US. Last month I've been in Argentina and saw that a brand-name 5 lb package which is imported(!) retails for something like $ 7.50 w/ tax. A 6% premium considering that it could be considered a luxury product, there's also higher sales tax, but it is essentially the same price. It's a commodity after all, it's just detergent powder. The same detergent powder that is sold in Argentina, manufactured in Brazil no less, retails for $ 32 here. Why? There are no feasible alternatives, there is no feasible competition, and people will pay. The local companies here try to excuse themselves blaming high taxes, but this is not the full picture. If I wanted to setup a company to benefit myself from the arbitrage, I'd be out of money just to hire a tax lawyer to understand the tax implications of importing and reselling detergent powder. What's the effective retail tax rate for detergent powder? Who knows? Now, let's assume for our exercise the tax rate is insane and detergent powder has a 100% tax rate, I could be buying them at retail prices, selling them at half of what it is currently being sold and still make a profit. If this detergent powder price point is just pure profit on the manufacturer/retailer part, I'd rather have low stock to not be burned when they decrease their prices to cut me, but to benefit from the true import duties that are available for businesses (yes, that 60% import duty everybody hears about is only for regular people) I'd have to spend a lot of money to structure a full sized import/export business and order a ton of detergent to dilute my fixed costs. Now the risk of loss is greater, and my small arbitrage business idea doesn't look so good. The established companies won't have any competition as it is crazy as you see above, so they set the price point they want. It is exactly the same story with the automotive industry, fashion and even Apple. They famously sell the most expensive iPhones in the world, but I actually got mine 2 weeks after launch from an official reseller that just charged a fair price (like 20% over US retail) on a sale. Sorry for the long rant, the taxes are high, specially when you consider the perceived return on the tax paid, but it's not the full story.
- meiraleal 3y ago
  > Last month I've been in Argentina and saw that a brand-name 5 lb package which is imported(!) retails for something like $ 7.50 w/ tax And that is why Argentina is broke and Brazil's real is the strongest south American currency. I'll take that over cheap dishwasher detergent powder any day.
- rescbr 3y ago
  Ok, so I went and checked what are the taxes for detergent powder. It could be very wrong as I don't know the nuances of the sales tax. There are the federal import duties + taxes, amounting to 29.4%. Note that this rate is specific for powdered dishwasher detergent. Considering the standard São Paulo state sales tax of "18%" which is actually 21,95% as you don't simply multiply the good's price by the rate, but divide it by 1-rate, you end up with a 58,38% effective tax rate for importing and selling the detergent powder. Ah yes, the federal taxes compose the tax base as well, so you are paying taxes on the privilege of being taxed. A good proxy for the right retail price would be just multiplying the US retail price - that already includes the profit - by the effective rate, which would land it at around $ 12. Consider that no sane business would be paying retail prices (and the import duties are applied to the bulk/transfer price), you can figure out that there's at least 169% of profit tacked on the package of detergent.